Options Academy
Ratio Calendar Spreads 104: Reverse Calendars & Follow-up
A reverse calendar sells long-term options and buys short-term options. It can profit from big moves or falling implied volatility.
What Is a Reverse Calendar?
A reverse calendar is the opposite of a normal calendar spread.
You sell the long-term call and buy the short-term call at the same strike.
This structure is less common for retail accounts due to margin requirements.
How It Makes Money
Reverse calendars profit if the stock makes a big move away from the strike.
They can also benefit if implied volatility drops after the trade is opened.
Profit Driver 1
Large move away from strike
Profit Driver 2
IV contraction
Same Strike
Yes
Common Users
Pros, futures options traders
Follow-up Principles (Ratio Calendars)
The main defense in ratio calendars is to close early if the stock rallies before near-term expiry.
A rule of thumb: exit if the stock breaks above the eventual break-even point.
If time has passed and the stock is near the strike, consider taking a small profit.
Probability Profile
This strategy can have a large probability of small profits, because the stock starts below the strike.
Large profits are possible if the stock rallies after near-term expiration.
Losses happen when the stock rallies too quickly, which is why discipline matters.
Stock stays below strike
Small profit
Stock rallies after expiry
Large profit possible
Fast rally before expiry
Loss unless closed
Key Rule
Close early on breakout
Key takeaways
- Reverse calendars sell long-term and buy short-term options at the same strike.
- They profit from big moves or IV contraction.
- Ratio calendars require disciplined exits on early rallies.
- Small profits are common; large profits are possible after near-term expiry.
Series
Ratio Calendar Spread Masterclass
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